Rub: Not really moderate – Commerzbank

The Central Bank of Russia (CBR) maintained its key rate unchanged on Friday, as expected unanimously. There would be a more pronounced change in the language towards a dovish tone, and in fact, some commentators interpreted the language like Dovish because a key phrase was eliminated about the possibility of an increase in rates in the next meetings, says Tatha Ghose, FX analyst of Commerzbank.

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“However, we do not consider that the updated language is more dovish at all: the updated projection of the key rate still maintains a scenario where there could be an increase in rates before the end of the year. In fact, no macroeconomic variable was significantly reviewed in the Dovish direction. The review of the projection for the key rate does not qualify; for this variable, the projection range was reduced simmetrically from both ends. which automatically means that the upper end was slightly reduced, but this does not count as a more Dovish projection.

“At the same time, we do not interpret these signs as Hawkish either. Rather, we maintain our impression before the decision on the rate: that Governor Elvira Nabiullina could remain worried that inflation will be re-acelere if she pointed out a more lax policy in the next quarter. The CBR Board recalls that they paused the increases of rates last year and that turned out to be premature It caused an inflationary increase, subsequently forcing to restart rates increases.

“Our base scenario is that the CBR would maintain the key rate without changes in 21.0% for at least another quarter. Subsequently, they could begin the cuts of fees. This change in monetary policy will not impact much on the USD/RUB or EUR/RUB. We are very optimistic and predict that the USD-Rub and the Eur-Rub gradually slide upwards during the next year. “